Debt to income ratios and the APRA lending limit

The debt to income ratio, usually shortened to DTI, expresses total debt as a multiple of gross annual income. A household earning $150,000 with $900,000 of debt has a ratio of six times.

Until recently the ratio was a supervisory measure that banks monitored and borrowers rarely encountered. That changed on 1 February 2026, when a limit set by the Australian Prudential Regulation Authority took effect. It is now a binding constraint on Australian mortgage lending, and it operates quite differently from the serviceability test most borrowers are familiar with.

How the ratio is measured

DTI is total debt divided by gross annual income. Both terms are wider than borrowers expect.

Debt includes the new home loan, any existing mortgages being retained, investment property loans, personal and car loans, the full approved limit on credit cards and lines of credit rather than the balance owing, and other credit commitments. For a household with several properties, the total of all property debt counts, not just the loan being applied for.

Income is gross annual income before tax, as the lender assesses it. This is not necessarily the figure on a payslip. Where a lender shades overtime, bonus, commission or rental income, the shaded figure is generally what is used, which means the ratio a lender calculates can be higher than the one a borrower calculates for themselves.

For the purposes of APRA's limit, DTI is defined in Reporting Standard ARS 223.0 Residential Mortgage Lending, and the limit itself is given effect through Attachment C to Prudential Standard APS 220 Credit Risk Management.

Worked ratios

Household	Debt	Gross income	DTI
Single borrower, no other debt	$600,000	$110,000	5.45 times
Couple with a car loan and credit cards	$790,000	$180,000	4.39 times
Couple, larger loan, no other debt	$900,000	$160,000	5.62 times
Couple with a home and an investment property	$1,300,000	$200,000	6.50 times

The pattern is instructive. A single borrower with a large loan can sit below six times, while a couple on a higher income with two properties sits above it. The ratio is driven by total debt, so investors with several properties reach the threshold far sooner than owner-occupiers with one.

Put the other way, keeping a loan below six times requires gross income of at least one sixth of it: $100,000 for a $600,000 loan, $125,000 for $750,000, $150,000 for $900,000 and about $216,667 for $1,300,000.

What APRA actually limited

APRA announced the measure on 27 November 2025, with commencement from 1 February 2026. The terms are specific.

• Authorised deposit-taking institutions may write up to 20 per cent of new owner-occupied loans at a DTI of six times or more.
• Separately, they may write up to 20 per cent of new investment loans at a DTI of six times or more.
• The scope is new loans funded, secured by residential property in Australia, for housing purposes.
• It applies to all authorised deposit-taking institutions conducting residential mortgage lending in Australia.

The measurement period depends on the size of the institution. Significant financial institutions measure the share quarterly. Other institutions measure it on a rolling four quarter basis, which smooths the result and gives smaller lenders more flexibility within any single quarter.

APRA described the purpose as pre-emptively containing the build-up of system-wide risks and strengthening banking and household sector resilience, noting an increase in high DTI lending, particularly to investors, and stating that within the limit banks retain discretion to lend to creditworthy high DTI borrowers in line with their own risk appetite and lending policies.

The exemptions

Three categories of lending are exempt from the limit, and each is significant.

• Finance for the construction of new dwellings, as defined in Reporting Standard ARS 701.0.
• Finance for the purchase of newly erected dwellings, also as defined in ARS 701.0.
• Bridging finance, which APRA defines for this purpose as owner-occupied lending funded during a period where borrowers intend to transfer their principal place of residence and in the interim also have an existing owner-occupied loan. APRA expects the temporary arrangement to be completed within twelve months of origination.

The first two exemptions align the limit with housing supply policy: lending that results in a new dwelling being built is not constrained. The bridging exemption is practical rather than policy driven, since peak debt during a bridge would otherwise produce a very high ratio for what is a temporary position, as the guide to bridging loans explains.

A portfolio limit, not an application test

This is the most important point for borrowers and the one most often misreported. The limit does not prohibit a loan at six times income. It restricts the share of a lender's new lending that may sit at or above that level.

Three practical consequences follow.

1. High DTI lending remains available, and a borrower above six times is not automatically declined.
2. Appetite varies through the quarter. A lender approaching its internal threshold may tighten, and the same application may be treated differently at a different time or a different institution.
3. Competition still exists. Because non-bank lenders are not authorised deposit-taking institutions, they are not subject to APRA's limit, although they remain subject to responsible lending obligations under the National Consumer Credit Protection Act 2009.

A borrower above six times is therefore looking at a narrower market rather than a closed one, and the value of comparing lender policies before applying rises accordingly.

Three separate constraints

Australian mortgage lending now applies three distinct tests, and a borrower must satisfy all of them.

Constraint	What it measures	How it is set
Serviceability	Whether repayments can be met from income after expenses	Tested at the product rate plus a buffer of at least three percentage points
Loan to value ratio	The loan against the value of the security	Lender policy, with mortgage insurance generally required above 80 per cent
Debt to income ratio	Total debt against gross income	Portfolio limit of 20 per cent of new lending at six times or more

They are independent. A large deposit lowers the loan to value ratio but does not improve serviceability. A high income improves serviceability but may not lower DTI if the debt is large. A borrower can pass two tests and fail the third. The guides to how much you can borrow and the loan to value ratio cover the other two.

It is worth noting which constraint binds in which conditions. When interest rates are high, serviceability usually binds first, because the buffered assessment rate is punishing. When rates are low, serviceability loosens and DTI becomes the binding constraint, because a borrower can service a larger multiple of income at a lower rate. APRA's decision to activate a DTI limit is consistent with that logic: it is a tool for periods when cheap money would otherwise allow leverage to rise faster than incomes.

Why the ratio matters beyond the regulation

The limit is recent, but the underlying measure was already useful, and it remains a better guide to household risk than either of the other two tests.

Serviceability answers a question about today: can this household meet these repayments at an assessed interest rate, given its current income and expenses. The loan to value ratio answers a question about the lender's security. Neither captures how exposed a household is to a change in circumstances over a thirty year term.

The debt to income ratio does, at least roughly. A household at three times income can absorb a substantial rate rise, a period of reduced income or an unexpected expense by adjusting spending. A household at seven times has far less room, because the repayment consumes a larger share of income at every interest rate, and because a rate rise of one percentage point costs more in dollars on a larger debt.

That sensitivity is worth quantifying before borrowing rather than afterwards. On a $900,000 loan, a rate rise of one percentage point adds roughly $9,000 a year in interest in the early years. On a $450,000 loan it adds roughly $4,500. The household with the larger ratio experiences the same rate decision as twice the shock, which is the essential reason regulators watch the measure and a reasonable argument for borrowers to watch it too.

Interest only lending and the ratio

Interest only loans deserve a specific mention because they interact with the ratio in a way that surprises some borrowers.

An interest only loan has lower repayments during the interest only period, which can make serviceability look more comfortable. It does not reduce the debt at all, so the debt to income ratio is unchanged, and because no principal is repaid during the period, the ratio does not fall over time either. A borrower who takes a five year interest only term ends that term with the same debt and, unless income has risen, the same ratio.

Lenders also assess interest only loans on the ability to repay principal and interest over the remaining term after the interest only period ends, which means the apparent serviceability advantage largely disappears in the assessment. The guide to interest only and principal and interest repayments for investors examines the trade-off, and APRA's macroprudential framework contemplates limits on interest only lending as a separate tool that has been used before and could be used again.

Who is most affected

• Investors with several properties. Total property debt counts, so a portfolio reaches six times income quickly even where each property is individually well secured and the rental income is strong.
• Borrowers in expensive capital city markets, where the ratio of prices to incomes is highest.
• Single income households buying alone, who cannot spread debt across two incomes.
• Borrowers relying on shaded income, since the lender's assessed figure rather than the gross figure drives the ratio.
• Households carrying consumer debt, because credit card limits count at their full approved amount.

The measure is least likely to affect borrowers with modest loans relative to income, those buying or building new dwellings, and those using bridging finance.

How to reduce the ratio

The levers are limited, because the ratio is a simple fraction, but several are practical.

1. Reduce or close credit card and line of credit limits. The full limit counts as debt even where nothing is owed, so this reduces the numerator immediately and at no cost.
2. Repay short term debt before applying. Car and personal loans count in full.
3. Borrow less. A larger deposit reduces the loan, which reduces both the DTI and the loan to value ratio.
4. Ensure all income is documented. Income the lender cannot verify does not enter the denominator, and evidencing a bonus, second job or rental income properly can move the ratio materially.
5. Consider whether a new dwelling is suitable, since construction and newly erected dwelling finance is exempt from the limit.
6. Sell an existing property where a portfolio has grown faster than income.

Consolidating debts into a mortgage reduces the interest rate but does not reduce total debt, so it does not improve DTI. It may improve serviceability by lowering required repayments, which illustrates how the two tests can pull in different directions.

Context and outlook

Debt to income limits are a standard macroprudential tool internationally and have been used in New Zealand, Ireland and the United Kingdom, generally alongside loan to value limits. APRA's framework, set out in Attachment C to APS 220, contemplates several credit measures including limits on high DTI lending, limits on investor or interest only lending, and adjustments to the serviceability buffer.

APRA's System Risk Outlook published on 21 May 2026 confirmed that the settings remained unchanged: the serviceability buffer at three percentage points, the countercyclical capital buffer at one per cent of risk-weighted assets, and the high DTI limits as activated. Because these settings are reviewed regularly, borrowers planning a purchase some distance ahead should confirm the current position rather than rely on a figure from an earlier period.

This article is general information and not personal or credit advice. Lender policies within the limit differ substantially, and a borrower near the threshold may find their options vary considerably between institutions. Those who would like their position assessed against several lenders may request a free assessment from an accredited broker, or read the guide to Australian lenders.